This is a pricing question:

Step 1: Ask for clarification question:

1) Should we consider that prime video is still included for free?

2) This price increase is to be considered for both business and personal users?

3) Is there a specific geography under consideration?

Step 2: Describe product and industry:

Prime offers an annual subscription for unlimited free shipping for thousands of products sold by amazon and partners. The service comes in two flavors viz. retail and business. Annual price-$150

Prime also comes with free video subscription which is worth about  $7-9/month

Other competitors of Prime are Walmart + and few others aligned with national level grocery store

Step 3: Choose objective

Increase revenue and profitability while remaining competitive and without reducing the user base

Step 4: Choose strategy

Mix of Cost basis, competititive and low starting price

Step 5: Compute a price

I am ignoring benefit of Amazon prime and restricting to only US gep

a) Average shipping price/$6 /item

b) Assuming prime has a subscription base of ~100 Mn with ordering behaviour as follows:

–30% make about 1 order/month =30 million orders

-50% make about 3 orders/month=150 million orders

-20% make about 5 orders/month = 100 million orders

cost of  280 million orders x $6/order= $1.68 bn

c) How is much prime earning/year from these customers=$149*100 Mn = $14.9 bn

Amazon is in fact making a profit of $13.22 bn/year from Prime subscriptions

c) With an yearly price of $149, customers will get a breakeven with $149/6= ~24 orders

Atleast 30% of their customers dont make full use of their prime membership and risk going to cheaper options like Walmart +. If Amazon reduces their price of their membership, they might risk reducing their profits.

Recommedation:

Create a low starting price model as follows

$100 for <13 shipping / year

$149 for unlimited shipping/year

With this Amazon might face a loss of $50 * 30 million- $1.5 bn but still avoid a risk of $4.4 Bn worth of business going to Walmart +.